By ETF Heat Map Team

The semiconductor industry serves as a global driver, enabler and indicator of technological progress. It is a crucial industry in today’s fast paced technology driven environment. The semiconductor industry has shown phenomenal growth between November 2013 and June 2015, almost doubling in value according to the PHLX Semiconductor Index (known as SOXX). However, the third quarter of 2015 took a downtrend trend with the index losing 2 percent. Presently, SOXX , a Semiconductor ETF is trading at a high.

Despite the market uncertainty revolving Brexit, the semiconductor industry has done well in 2016. Shares of SOXX have gained almost 21 percent year-to-date, suggesting the stunning performance of the industry. However, will semiconductor stocks remain attractive for the future is a question every investor needs an answer to. The rate at which technological innovation, mass adoption, and breakthroughs take place will help to determine the demand for these miniature electronic computing powerhouses.

Some Semiconductor ETFs and Technology related ETFs in the ETF Heat Map database and screener worth exploring include:

  • SMH – Market Vectors Semiconductor ETF
  • SOXX – iShares PHLX Semiconductor ETF
  • SOXL – Direxion Daily Semiconductor Bull 3X Shares
  • XSD – SPDR S&P Semiconductor ETF
  • PSI – PowerShares Dynamic Semiconductors ETF

SOXX’s top 6 holdings by the iShares PHLX Semiconductor ETF, is made up of world renown semiconductor producers such as Texas Instruments (TXN), Broadcom Ltd. (AVGO), Qualcomm Inc. (QCOM), Intel Corporation Corp. (INTC), NXP Semiconductors NV (NXPI), and gaming leader Nvidia Corp. (NVDA). The expense ratio for the SOXX ETF remains at a low 0.48% and the portfolio has a P/E Ratio of 21.01.

XSD ETF Heat Map

The attractiveness of the semiconductor industry can be seen further with a deeper exploration of the top companies in the market. Texas Instruments Incorporated (NASDAQ: TXN), which is the top company according to the SOXX index, expect earnings to grow by 13 percent in the current quarter. The company reported the earnings of $0.76 per share in the quarter ended of June 30.

Qualcomm Inc. (NASDAQ: QCOM), a San-Diego based company, registered a 52 week high on its stock prices recently. The recent financial performance of the company has been impressive with its new affiliation with Vivo, a phone brand based in China. As highlighted in the International Trade Administration’s 2016 Semiconductors and Semiconductor Manufacturing Equipment report, short term overall annual demand growth is expected to slow to 3.5%. In the intermediate to long run the Internet of Things (Everything), smart cities, smart grids, autonomous devices, artificial intelligence, and automatic manufacturing will drive future demand for semi-conductors.

RobotsHowever, it should be noted that presently the semiconductor industry heavily relies on the market for personal computers and the mobile phones. The global demand of personal computers is expected to drop 7.3% this year, according to International Data Corp.’s Worldwide Quarterly PC Tracker. Similarly, the demand for mobile phones does remain inconsistent.

Many companies in the industry have now shifted their focus away from parts of personal computers to other markets in demand (drones etc.) Some companies have started the production of new data centers used for cloud computing, whereas some have serious attention toward producing chips for the Internet of Things products. Others have diverted their focus towards the automotive industry as the self-driving technology is being given serious thoughts due to implied potential for daily use by transportation machines around the world.

Other opportunities for the industry lie in chips that reduce power consumption, reduce heat dissipation, capture solar energy, and create more efficient lighting solution among others. This provides the vast potential for growth in future in alternative segments considering the falling demand for personal computers.

With the introduction of 5G wireless technology and other newly emerging technologies, the healthy relationship between supply and demand in the semiconductor industry will persist in advancing electronic global environment for years to come.


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